27 March 2014

[I]t’s possible for good people, in perversely designed systems, to casually perpetrate acts of great harm on strangers, sometimes without ever realising it. The current regulations – for companies, doctors and researchers – create perverse incentives; and we’ll have better luck fixing those broken systems than we will ever have trying to rid the world of avarice.

Dr Goldacre is discussing the medical profession, but his point applies to any regulatory system. In medicine, as in so many other policy areas, the complexity and obscurity of relationships between cause and effect make it easy to generate outcomes that are suboptimal at best and murderous at worst. Where large sums of money are at stake, the manipulation of a regulatory environment creates the means by which the minor tendency towards avarice (or, more politely, self-interest) of the few can be leveraged against the well-being of the many. Systems are put in place to deal with the problem when it becomes to obvious too ignore. But they themselves are subject to hijacking and gaming by the beneficiaries of the current regulatory environment. In short, we have no mechanisms to terminate failed policies, especially those that create or enrich powerful interest groups, including those who genuinely believe they are acting for the good of wider society.

We need to subordinate policymaking to society's needs, not those of interest groups whose over-arching goal, despite all their good intentions, vision statements and lofty idealism, is self-perpetuation. If one doubts this, one need only continue reading Bad Pharma, to see that universities and ethics committees deny doctors the opportunity to see crucial data from the many medical trials that result in unfavourable outcomes for the pharmaceutical industry. Even worse:

So universities and ethics committees may have failed us, but there is one group of people we might expect to step up, to try to show some leadership on missing trial data. These are the medical and academic professional bodies, the Royal Colleges of General Practice, Surgery and Physicians, the General Medical Council, the British Medical Association, the pharmacists’ organisations, the bodies representing each sub-specialty of academia, the respiratory physiologists, the pharmacologists, the Academy of Medical Sciences, and so on. These organisations have the opportunity to set the tone of academic and clinical medicine, in their codes of conduct, their aspirations, and in some cases their rules, since some have the ability to impose sanctions, and all have the ability to exclude those who fail to meet basic ethical standards. We have established, I hope, beyond any doubt, that non-publication of trials in humans is research misconduct, that it misleads doctors and harms patients around the world. Have these organisations used their powers, stood up and announced, prominently and fiercely, that this must stop, and that they will take action? One has: the Faculty of Pharmaceutical Medicine, a small organisation with 1,400 members. And none of the others have bothered. Not one.

Dr Goldacre speaks about the British environment, but there's nothing unique to the UK about his analysis.

So what can Social Policy Bonds do about this systemic failure to put the interests of ordinary people against those of powerful corporations and regulatory bodies?

Continuing with the example of medicine, Social Policy Bonds would target directly and explicitly that which the pharmaceutical industry, the professional bodies and the policymakers who create the regulatory environment all say they are trying to improve: the health of society. Government would continue to raise funds for the improvement of society's health, but instead of dispensing these funds in ways that benefit organizations that are supposed to put society's interests first would only those who achieve society's health goals. It would issue Health Bonds, redeemable only when these goals have been achieved and sustained. The goals would be broad and transparent, comprehensible to ordinary people and so not subject to the smoke-and-mirrors manipulation that features so prominently within our current framework. The bond mechanism would ensure that only activities that actually help achieve our health goals would be rewarded.

A Health Bond regime would be a drastic change from any existing health care system. In my book, which is freely downloadable from my website, I describe how we could move gradually from current systems to such a regime. Health Bonds would lead to a new type of organization: ones whose interests are entirely congruent with those of society. The current system, as Dr Goldacre makes inescapably clear, is broken to the extent that it kills many of the people it's supposed to beneft. I propose instead that we revolutionise health policy by putting the interests of ordinary citizens above those of vested interests.

15 March 2014

Global fuel subsidies cost as much as $1.9 trillion a year.... In 2011, US subsidies for petroleum products were more than 2 percent of GDP. ...
Egypt spends 9 percent of [its] GDP to keep gasoline prices low. ... The IMF says 61 percent of gasoline subsidies goes to the richest 20 percent of citizens, who own cars....Why fuel subsidies in developing nations are an economic addiction, and The cheap fuel trap, Brendan Greeley, 'Bloomberg Businessweek', dated 17 March

What is it about our policymaking system that perpetuates this insanity? It's clear that the fossil fuel industries are powerful and so can lobby effectively for the subsidised extraction and consumption of their products. And we might not have known, at first, what we know now: that these subsidies transfer funds from the poor to the rich, accelerate the destruction of our environment, and are extremely wasteful. But now that we do know...what then? It's the persistence of these insane subsidies, in the face of decades of evidence of the social and environmental damage they do that is the biggest indictment of our current policymaking system.

Policies as crazy as these get implemented because they sound quite plausible. Reducing the cost of fuel, say, 'stimulates the economy, which creates jobs and benefits everybody'. Nobody bothers to ask why, if we are intent on giving out scarce resources to favoured groups, we don't give them directly to the people we say are going to benefit: poorer people, let's suppose, who can then make their own decisions about the sort of society they want to live in. Our current system takes some plausible-sounding relationship and makes it the basis of policy. That can work well when social and environmental relationships are easy to identify and don't change much over time. It works less well when we are talking about much more complex, intricate relationships, with thousands of variables and time lags. To reduce the negative impacts of climate change, for instance, or to bring about world peace: these are beyond the scope of any organization that first identifies (or claims to) a relationship between cause and effect and then formulates policy accordingly.

The better alternative is to target outcomes directly, and let motivated people work out the best ways of achieving them. These ways will vary dramatically over time and space, the more so for bigger goals. A Social Policy Bond regime would not only target these outcomes and reward people for achieving them; it would also inject the market's incentives and efficiencies, ensuring that they would be achieved in the most cost-effective ways possible.

The old way of making policy has been corrupted, such that we cannot even discontinue our most obvious, spectacularly stupid and destructive subsidy schemes. It's time to target outcomes directly, and contract out the achievement of our social and environmental goals to people who will be rewarded, not because they are powerful or smart or well connected, but because they achieve society's goals most efficiently.

11 March 2014

"National Security", "family farms", "international aid" and now "climate change": a small sample of concepts that become corrupted by government and used to justify transfers of resources from the poor to the rich.

Under the current policymaking regime, politicians can get away with using phrases like these to justify setting up departments and initiating activities that sound as though they will help deal with a problem, but end up shoring up vested interests. They can do this because they absolutely refuse to reward the achievement of explicit, agreed, meaningful outcomes. Instead they channel funds into organizations whose names suggest to the naive that they are striving to achieve an outcome or deal with a problem. These can be government agencies, supra-national government organizations, or large and favoured corporations.

This came about largely because setting up bureaucracies for many social and environmental problems was originally the most efficient way of solving them. Society was less complex, the linkages less intricate, the time lags shorter. The nature of, responsibility for, and solutions to, our most glaring problems were often easier to identify than nowadays.

But times have changed. Nobody today can identify how to achieve world peace, though the need to do so is probably greater than at any time in history. Nobody really knows how to tackle climate change: the much-vaunted greenhouse gas explanation may or may not be totally wrong, and anyway cutting emissions might not be the best solution or, more likely, might just be one of many necessary approaches.

Yet we persist in attempting to solve problems only after a single cause has been identified. Once that happens, the response of government is to channel resources into bodies and activities that ostensibly deal with the cause of the problem, but whose own exists depends on failing to be efficient at doing so. Somewhere along the way, accountability is lost. So to help 'family farms' taxpayers and consumers spends billion on higher food prices to support wealthy landowners. 'National security' has become an excuse for mass surveillance, the setting up of an embryonic police state, and ruinously expensive accumulation of weapons systems. 'International aid' is a byword for corruption and waste.

Climate change looks like going the same way: becoming an excuse to set up massive bureaucracies that will allegedly cut greenhouse gas emissions - or what were thought to be greenhouse gas emissions back in the 1990s.

With Social Policy Bonds, there's no excuse for this sort of deception. Instead of vaguely targeting 'terrorism', or 'climate change', or 'rural poverty', we can specify exactly what it is we want to achieve. So if there is a societal consensus that poor people should pay more for their food so that enormously wealthy landowners can afford a second helicopter, we could choose to do exactly that. But if we actually want to help poor people, or to alleviate the problems caused by adverse climatic events, or to achieve world peace, then we can issue Social Policy Bonds that reward people only when they have achieved these goals. We do not have to wait until cause and effect have been identified; nor till the optimal solutions have been found. Under a Social Policy Bond regime it would be bondholders who would do all that; and the more efficient they are at doing so, they more they will be rewarded. Diverse, adaptive approaches are going to be necessary to solve our most urgent social and environmental problems. The current policymaking environment stifles such approaches. A Social Policy Bond regime, in contrast, would encourage them.

03 March 2014

What is government for? Obviously, it's for distributing taxpayer funds to those who are most in need:

The much-anticipated first film of “The Hobbit” trilogy [could] gross about $3 billion. So how much taxpayer money, would you guess, did Warner Bros. Entertainment Inc. need to produce the films based on the J.R.R. Tolkien book? The answer is zero. The studios are investment companies, and the films are almost certain to be immensely profitable. But now you aren’t thinking like a studio. The real question is: How much taxpayer money can Warner Bros. demand from the government of New Zealand to keep production there (rather than, say, in Australia or the Czech Republic)? That answer turns out to be about $120 million, plus the revision of New Zealand’s labor laws to forbid collective bargaining among film-production contractors, plus the passage of three-strikes Internet-disconnection laws for online copyright infringement, plus enthusiastic and, it turns out, illegal cooperation in the shutdown of the pirate-friendly digital storage site Megaupload and the arrest of its owner, Kim Dotcom. Kill the Hobbit Subsidies to Save Regular Earth, Joe Karaganis, 'Bloomberg View', 4 December 2012

The Government is talking up lavishing taxpayers' dollars on Avatar sequels - but the Treasury has already panned the spending as a turkey. As part of the deal announced yesterday by Prime Minister John Key, two fellow ministers and Avatar director James Cameron, the movies' producers will get at least $125 million in taxpayers' money in return for spending at least $500m making the films in New Zealand. Critical Eye on Avatar Deal, Ben Heather, 17 December 2013

This is government as an investment company: thinking it knows how best to gamble with other people's money. Or it's a desperate attempt by politicians to associate themselves with something glamorous, at the expense of the millions of people who aren't as photogenic, so must pay for government and its whimsical bets. Either way, doling out millions to rich corporations is irresponsible at best, corrupt at worst. Governments can get away with this because they don't formulate policy in terms of outcomes. In our currently policymaking environment it's quite acceptable for politicians to act on the basis that, for instance, cutting back greenhouse gases will solve the climate change problem, or that building more roads will boost economic growth or, indeed, that boosting economic growth will enhance people's well-being.

The days when easily identifiable cause-effect relationships were significant enough to drive policy effectively and efficiently are gone. Society is too complex, the time lags too great, the linkages too murky, for that to work any longer. A better alternative would be to target outcomes, and let motivated people work out how best to achieve them, through adaptive, diverse approaches. A Social Policy Bond would do this and, as well, inject the market's incentives and efficiencies into every stage of every such approach.

For more details, see the SocialGoals.com website which, if you haven't been there recently, has been polished a bit, and now includes, on this page, links to pdf files of all the chapters in my book.

I suppose things could be worse. Well, they are worse: as well as distributing scarce funds from the poor to the rich, government takes from taxpayers to subsidise the destruction of our environment. It makes our involuntary donations to Warner Brothers look like enlightened policy:

The UN Development Programme says rich countries should switch some of the staggering $35 billion a year they spend subsidising fishing on the high seas (through things like cheap fuel and vessel-buy-back programmes) to creating marine reserves—protected areas like national parks. In deep water, 'The Economist', 22 February (subscription)

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Social Policy Bonds

See the Social Policy Bonds website for overviews and links to articles, papers, news and more about Social Policy Bonds. Click on the image in the panel below to download a 2400-word article published by the Institute of Economic Affairs, London.

Social Policy Bonds in 2400 words

Social Policy Bonds in the media

25 May 2018: a short article on Social Policy Bonds and their possible application in India, appears on Market Express (India). It is by Dr Ashok V Desai and titled Incentivizing welfare.

9 October 2015: An article by Greg Bearup on the genesis of the Social Policy Bond idea, and application of a version of it in Australia appears in the Weekend Australian Magazine. (The article can also be downloaded as a pdf from here.)

October 2013: Professor Robert Shiller of Yale University, is named as one of the three winners of the 2013 Nobel Prize in Economics. His Nobel Prize lecture (pdf) delivered on 8 December, mentions Social Policy Bonds. Professor Shiller has for many years encouraged my work on Social Policy Bonds, beginning in late 1996 when he sent me this letter.

3 May 2012: An audio talk by Nobel Prize winner Professor Robert Shiller at the London School of Economics, in which Social Policy Bonds are briefly mentioned, is available here.